2023 modifications to the NZCB Building Contracts

Periodically we update New Zealand Certified Builders (NZCB) suite of building contracts to ensure they remain stateof-the-art. Here is a summary of the forthcoming changes. These changes don’t take effect until 24 August 2023.

1. When charging on the achievement of milestones or defined stages of completion, you can issue an invoice when you have practically completed that stage.

2. The contract is consistent with the new process for guarantee applications. It simply identifies whether the Owner wants a guarantee, and if so, who is going to notify Halo Guarantees Limited.

3. A lot of the definitions are tidied up.

4. The Builder’s personnel don’t have to work overtime or weekends if they choose not to, and they can take reasonable holidays.

5. You don’t have to charge labour at cost plus markup. You can add the markup to the rates you charge your staff out at.

6. You are not prohibited from passing on cost fluctuations merely because you could have foreseen them or it was possible to predict that they would happen.

7. You can still adjust the price for a variation even if the owner only approves it after you have already done it.

8. If building work or materials that were part of the original scope of work turn out to be much greater or more complex than expected (for example, site conditions, asbestos or other contaminants, or hidden decay), then the additional work or materials can be treated as a variation.

9. The deposit does not need to be “held” by the builder. It can be spent immediately. It simply buys the Owner a credit against the final invoice, and a partial refund if it exceeds the final invoice.

10. Adjustments for provisional sums and variations can be invoiced as soon as the relevant work is done.

11. Previously the Builder was required to start work as soon as the contract was signed, the deposit was paid, and the consents were issued. Now there are a couple of other requirements – the Owner must be ready to start, and the Builder needs to have made sufficient headway on its other projects to be good to go.

12. However, if either party isn’t ready to start by within three months of signing the contract, the other party can cancel.

13. The Building Act requires a residential building contract to state the “expected” start and completion dates, but it doesn’t say what happens if they aren’t achieved. The contracts now make it clear that “expected” simply means anticipated, not fixed or guaranteed.

14. Extensions of time are now available for all natural disasters, delays by the owner’s designers or other consultants, unforeseen physical conditions like site conditions, asbestos or other contaminants or hidden decay, and unavailability of subcontractors.

15. A glitch in the contract documents that ends up costing the builder extra, can be claimed as a variation even if the Builder could have detected it at the time of contracting.

16. If the Builder needs access to the building site from land or airspace belonging to a third party, the Builder must explore the options with the Owner, and the Owner must then make the necessary arrangements. Any extra costs incurred by the Builder as a result can be claimed as a variation, and the Owner is responsible for any damage or inconvenience to the third party provided the Builder takes reasonable care.

17. When the building work is damaged by an event that was covered by the contract works insurance, the Owner must pay the Builder for the restoration work irrespective of whether the insurance proceeds were sufficient, or the insurance company is resisting the claim or delaying payment.

18. Where the Owner wants possession prior to practical completion, the Builder can refuse, or can insist on the full contract price being paid first. If the Owner genuinely disputes any part of that price, the Builder can agree to early possession pending the resolution of the dispute, on the condition that the Owner is actively engaging in the disputeresolution process and the Owner provides security for payment of any unpaid or disputed amounts.

19. On practical completion the Builder must provide all reasonable assistance to the Owner to enable a Code Compliance Certificate (CCC) to be obtained. The contracts now emphasise that the Builder is bound by this obligation, and the Owner can’t make payment of any part of the final contract price conditional on CCC being issued first.

20. Previously there was some confusion about the deposit being “forfeited” when the Owner was in default. Now the contracts make it clear that the deposit isn’t confiscated as a penalty –the Builder simply deducts from it any amounts that the Owner owes the Builder.

21. If either party cancels the contract, then the Builder is entitled to be reimbursed for all costs or losses that the Builder can’t bring to an end immediately, including the hire of scaffolding, fencing, toilets, rubbish receptacles, generators or other plant and equipment, the purchase of building materials or prefabricated components, and subcontractor commitments.

22. Under the NZCB contracts, allegations of defective workmanship or materials are resolved in an extremely fast and cost-effective manner. They are simply referred to a jointly-appointed, independent building surveyor who interviews both parties, conducts a site inspection, and issues a ruling which must be complied with.

Many Owners resist this process, presumably because it will result in an outcome that is less advantageous to them than them simply not paying the Builder’s final invoice. Consequently, they frequently refuse to agree on the appointment of a building surveyor. In anticipation of that, the choice of building surveyor used to be referred to the NZ Institute of Building Surveyors, or the Building Officers Institute of New Zealand.

Those two organisations now refuse to make those appointments. Consequently, the contracts now provide that the Builder will nominate three building surveyors, and if the Owner doesn’t select one of them then the Builder will decide which one will be appointed.

23. The contracts used to provide that if the Owner disputes the Builder’s entitlement to a payment, and the disputed amount is greater than NZ$10,000, then the Owner must pay the disputed amount into trust. This is to ensure that both parties (not only the Builder) are deprived of the money, so both parties have an equal incentive to resolve the dispute. The minimum NZ$10,000 requirement has now been dropped, so the requirement now applies to any disputed amount.

24. To cater for the possibility that the money isn’t really paid into trust, or is paid in and then later secretly released, the Owner must get the trustee to promptly acknowledge in writing to the Builder that it is aware of and will abide by these requirements, and confirm the amount of the funds held.

25. If either party is prevented from complying with its obligations by some cause beyond that party’s reasonable control (this is known as a force majeure event) then they are excused until they can overcome the problem. Those causes now specifically include a pandemic. And the fact that the Builder could have anticipated any of those causes happening, is now irrelevant.

26. The contract clarifies how the Halo 10-Year Residential Guarantee works. It records that at the time the building contract is signed, the Builder is a NZCB member and Halo Guarantees Ltd is a subsidiary of NZCB. That means that the Owner can apply for a guarantee. If the Owner expresses an interest and the project appears to comply with the criteria for a guarantee, Halo Guarantees Ltd will email the Builder and the Owner with a link to the Guarantee application webform.

Those are the main improvements, and you will find them incorporated into all the contracts – including Small Works, Preliminary Services, Portable Buildings, and Spec Builds –although the precise wording may vary from contract to contract.